Former Dallas Fed President Kaplan: Market Too Aggressive on Rate Hike Expectations
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In an article published by Xinhua Finance on September 24, former Dallas Federal Reserve President Robert Kaplan stated that bond markets are being overly aggressive in pricing in future interest rate hikes by the Federal Reserve. Kaplan affirmed that the Fed's September rate increase was the correct decision and suggested that another hike in December could be reasonable, but he advised against a move in October. He noted that the Fed's dot plot indicates one more rate hike this year, but financial markets have already priced in more than that. Kaplan observed that while AI infrastructure and defense spending are booming, sectors such as automotive, housing, and those serving low- and middle-income consumers are weak or sluggish. He concluded that parts of the economy sensitive to the federal funds rate are not overheating.
Source report
Beijing, September 24 (Xinhua Finance) — Robert Kaplan, former president of the Federal Reserve Bank of Dallas, stated that the bond market has been overly aggressive in pricing in expectations of Federal Reserve interest rate hikes.
Kaplan noted that the Fed's decision to raise rates in September was correct, and another rate hike in December could also be a reasonable choice. However, he suggested that the Fed should likely pause any action in October.
According to Kaplan, the Fed's dot plot indicates one more rate hike this year, but financial markets have already priced in expectations beyond that.
"There is no doubt that AI infrastructure and application areas are booming. Additionally, for obvious reasons, defense spending is also very strong," Kaplan said. "But if you look at the automotive industry, housing-related companies, and businesses that cater to low- and middle-income consumers, while their operations are not terrible, they are generally quite weak or sluggish. Therefore, in my view, those sectors of the economy that are more sensitive to the federal funds rate are not currently overheating."
Editor: Wang Shurui
Source
新华财经Eastern
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Kaplan: Bond market overpricing Fed rate hikes; one more move may suffice